Forensic Accounting Expert Witness On Asset Misappropriation Part 1

Employees across the country at all levels of power and in all types of companies, engage in some form of asset misappropriation on a daily basis. Though often these actions may seem insignificant, over a period of time they can create severe long-term damages.

Asset misappropriation is a general term used to describe when someone takes an asset of a company, such as cash or supplies, for personal use at the expense of a company. Examples of this are as simple as checking a personal email, to as damaging as skimming or borrowing for oneself from cash reserves.
Small businesses are more susceptible to these problems than large businesses. This is because the internal accounting controls are usually weaker in small businesses than large businesses. Generally, by creating a system of checks and balances within a company, this will serve to reduce the instance of fraud, and increase the likelihood that the perpetrator will be caught.

If there is an internal audit staff, they could work along with the executives of a company to help see that the financial statements are correct and that any suspicious transactions be further investigated.

For large corporations, the Securities and Exchange Commission has taken certain steps necessary in an attempt to combat fraud in publicly traded companies. The Sarbanes-Oxley Act passed in 2002 is an effort to combat upper level fraud. This mandate is to reflect that the rest of the company understands that any skimming or larceny will be caught more readily, even if it is coming from the highest levels. However, even with this law the percentage of fraud that was uncovered by audit firms jumped from 7 percent to 29 percent in recent years.

Fraudulent actions can occur at any level of personnel and could go unnoticed by people familiar with the employees or the accounts at hand. Companies try to minimize this by utilizing random independent internal audits to try to uncover any asset misappropriation or fraud, before it becomes too damaging to the company. If a company allows for too much time between these types of internal audits or creates a regular schedule of review, the damages from potential fraud could cause monetary shortfalls or even bankruptcy as dishonest workers may adapt their strategies to not be caught by the audit.

Small companies are not obliged to follow this sequence, nor do they employ enough people to have a strong system of checks and balances to combat fraud internally. Only one person may be trained to accurately analyze the accounts to find instances of fraud. In these cases, the owner of the firm must be familiar with some signals of fraud. These often include:

• Forged or altered documents • Unexplained differences in cash accounts • Undocumented transactions and advances • Duplicate or phony and unreasonable expense reports • Fake companies involved in transactions (sometimes based on employee’s initials, or with the same home address)
• Consulting companies not previously utilized by the company